4/16/2010 @ 12:00PM

Market Crumbles After Goldman Fraud Charges

The major indexes fell sharply Friday morning after the Securities and Exchange Commission slapped
Goldman Sachs
with civil fraud charges. The Dow Jones industrial average dropped more than 100 points and the Chicago Board Options Exchange Volatility Index, commonly called the VIX, spiked 18.6%.

Shares of
Goldman Sachs
dropped 12.6% late Friday morning after the SEC charged the investment bank and one of its executives with civil fraud after the bank sold collateralized debt obligations to investors without disclosing that a major hedge fund run by billionaireJohn Paulson was involved in creating the securities and then bet against them. (See “Goldman Smacked” and “ Goldman Sachs Slapped With Fraud Charge.”)

U.S. equities were already struggling at the open to extend recent gains even after
General Electric
and
Bank of America
posted stronger-than-expected earnings reports. Upbeat news that housing construction and applications for housing permits rose last month was also drowned out by the Goldman charges. The Commerce Department said home construction rose 1.6% in March to a seasonally-adjusted rate of 626,000. The
SPDR S&P Homebuilders
exchange-traded fund was 1.9% lower in late-morning trading.

The Reuters/University of Michigan consumer sentiment index for early April dipped unexpectedly to a reading of 69.5, its lowest level in 5 months, likely reflecting Americans’ attitudes that the economy is not improving quickly enough based on stubbornly high unemployment and still-rising home foreclosures.

Just before midday the major indexes fell sharply amid surging volume and soaring volatility. (See “Where Has All The Volatility Gone?“) The Dow Jones industrial average dropped 117 points to 11,027, the S&P 500 fell 19 points to 1,192 and the Nasdaq gave up 35 points to 2,481.

Industrial conglomerate General Electric beat The Street by a nickel with adjusted quarterly earnings of 21 cents per share. Losses in its lending arm, GE Capital, were mitigated somewhat in the recent quarter. Still, top- and bottom-line figures came in below year-earlier results, sending shares down 3.4% in early trading. (See “GE Beats The Street.”)